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Mr. Bercow: My hon. Friend is developing a powerful argument. Does he agree that for someone who ceases to be an employee of a company thereafter to become a consultant to that company is both commonplace and entirely unobjectionable? Is not the fact that it strikes Labour Members as so bizarre merely testimony to the fact that the great majority of them have only ever worked either in the public sector or for pressure groups and regard any other pattern of employment with incredulity?
Mr. Swayne: I often found myself having to acquire specific skills in order to manage a particular project. If someone who had previously been in the employment of my organisation was available in the marketplace, that person would be my natural first choice because of his knowledge of the organisation; so it is entirely proper that such people should be so employed.
Further to my point about economic stimuli, Labour Members fail to take account of the fact that we are desperately short of certain skills, and if we drive people with those skills abroad we will all suffer. Labour Members have continued to deny the fact that those
Dr. Vincent Cable (Twickenham): I should like to say a few words in support of my hon. Friend the hon. Member for Kingston and Surbiton (Mr. Davey), who originally called for this debate. The speeches that we have heard this evening have vindicated that request.
Difficult though it may be, given the way in which the debate has proceeded, it might be useful to identify what are admittedly rather limited areas of common ground. There is some acceptance among Labour Members, at least formally, that there are people working in the IT industry and the offshore oil industry who are self-employed, even in the narrow terms defined in the Inland Revenue regulations and in tax law. I believe that the estimate is that something like 20 per cent. of the current IT contractor population will be given self- employed status. The phenomenon of the self-employed contractor is acknowledged to exist, but I am interested in why the figure of 20 per cent. has been used. It may be larger or smaller and I should like to know why it has been defined in that way.
Conservative and Liberal Democrat Members fully acknowledge that there are cases of abuse and that there are people who are trying to avoid tax by creating single-person companies. It is absolutely right that any Government should try to deal with those cases. That is common ground among Members on both sides of the Committee. We are concerned about the others--it may be a large group of people--who fall between the two categories. Essentially they fall into two groups, as the hon. Member for Aberdeen, Central (Mr. Doran) said. Some people are involuntarily working in the sector mainly because of their age. The IT industry is a very young industry in which anybody over 30 is considered old. Many people are forced out of organised employment and have to accept frequent and multiple contracts. They have to accept the risks, but they cannot define themselves as self-employed, as the hon. Member for St. Helens, South (Mr. Bermingham) argued they should, because of the nature of their work, which the hon. Member for New Forest, West (Mr. Swayne) explained. They mainly undertake project work, which means that they are likely to fail a control test as they work as part of a team under a project manager, probably for several months at a time. Such people are involuntarily in the position of self-employed service companies and they will be hit the hardest.
The second category comprises people who have consciously chosen that life style. They are willing to accept the risks and the fact that they have no job security, no guaranteed employer contribution and no national insurance contributions. They take all the risks in order to enjoy the flexibility of that life style, but, because of the way the tax law operates, they cannot be classified as
As it is such a grey area and the big arguments of principle have already taken place, many of us are looking for some sign that the Government recognise that a large number of people are on the margin, and are prepared to show some flexibility in dealing with them. They could do so in two main ways. First, they should recognise the force of the arguments about the limited nature of the 5 per cent. allowance. Many of the people to whom I have spoken can produce their accounts showing expenses of up to 20 per cent. Even if one discounts a little, expenses are generally considerably more than 5 per cent., for reasons that have been set out in some detail.
In addition, the Government should show some flexibility in the way in which the Inland Revenue deals with individual cases. My understanding is that some people could face penal charges if, quite accidentally, they classified themselves as self-employed and were subsequently determined not to be. I believe that the Inland Revenue sets itself five years to determine whether the self-employment principle applies, and people who are subsequently found to be in the wrong category after a year face tax penalties. That seems absolutely wrong. If someone has made a genuine mistake, the tax that they have paid should be credited to their eventual account.
Mr. Bercow: The hon. Gentleman and I agree that it would be better not to have these proposals at all. However, will he clarify whether he is advocating a larger blanket expenses limit to take account of the concern that the proposed limit is not adequate, or suggesting the operation of a taper, which might have some merit, but would be administratively highly burdensome?
Finally, one point that emerged from the discussion a few moments ago related to the total tax take, which is now estimated to be £900 million. When we discussed the matter six or nine months ago, the figure cited was £450 million. Will the Paymaster General explain why the estimate has changed so radically? Is it because, as I rather suspect, the conditions and exemptions will be much more narrowly drawn, so the tax base will be significantly higher? Is it based on some sort of calculation of how much leakage there will be in terms of people leaving the profession? This is a genuine question; I do not know the answer. It would be useful to know why this tax measure, which was initially introduced as having a modest tax take, is now approaching the £1 billion mark.
Dawn Primarolo: I thank the hon. Member for Twickenham (Dr. Cable) for his calm approach to an important discussion. I know that he has worked hard. He has written to me and has come to see me to discuss the issues. That is in marked contrast to other speeches from Opposition Members. I hope that I will be able to deal with all the points that have been raised, but if I do not manage to do so, I am sure that the hon. Gentleman will intervene.
Let me start with the points on which we appear to agree. I shall quote from Computer Contractor--a magazine that seems to be very relevant to the debate, as we are talking about information technology contractors. Under the headline "Make hay while the sun shines", it states:
Beg, borrow and steal to avoid paying higher rate tax this year. Next year you will not be able to avoid it. You should recognise your company for what it is, a tax haven.